Closing and liquidating
your business
Know your exist strategies!
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Closing and liquidating your
business.....not an easy decision to make!
 If you have accumulated business debts and are worried
you will never be able to repay them, it might be time to
sell the business's assets, pay off its debts as best you can,
and move on. Or the court appointed trustee will do it for
you!
 You might also close down your business because you
want to retire, in case of sickness etc.
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Some advice when closing a business
1. Decide to close a business
 If you are a sole proprietor you can decide by yourself to close the shop. If you work in partnership, be sure
to work together with your partner or any other organizational guidelines you have.
2. Get expert advice
 Closing a business is a delicate multi-step process. It is highly recommended that you find professional help.
Expert advice may come from lawyers, accountants, tax experts, bankers, and the tax authorities.
3. Cancel registrations, permits, licenses, and business names
 To protect your finances and reputation, ensure that you cancel all licenses and permits that you will no
longer need.
 If you have registered under an assumed, or trade name, other than your own name then you can cancel
that business name registration with your local authorities
4.Comply with employment and labor laws
 Pay respect to paying due salaries, unused employee’s vacations, obeying firing procedures. Also,
bare in mind if law says something about advance notice of closing prior to the decision.
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Some advice when closing a business –cont’d
5.Resolve financial obligations  Taxes and other duties will have to be paid.
6. Business debts
Notify all lenders and creditors of your plans to dissolve the business
and settle remaining debt. If you are unable to pay your debts, you may
want to consider filing for bankruptcy.
 Contact the business associates to whom you owe payment, or who owe
payment to you. It’s a good idea to discuss with your accountant,
attorney, and insurers to ensure that you have everything accounted for.
7. Close Accounts
Do not forget to close out your business bank account and cancel your
business credit cards.
8. Maintain records
 You may be legally required to maintain records, particularly tax and
employment records, even after your business has closed. A smart
guideline for keeping records ranges anywhere from 3 to 10 years.
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The usual methods of closing business
Solvent company or temporary insolvent
 Liquidating
 Selling
Long-term insolvent company, usually in blockade
 Bankruptcy
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Liquidating your
company
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General info on liquidating company
 Liquidating a company is an alternative when it has
enough assets to cover debts
 It may be done by the owner’s of the company or by the
court appointed liquidator
 The reasons for liquidation can be various, but the
important thing is that the company is solvent enough to
cover all the existing debts
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General steps in liquidating company
1. Make formal decision about liquidation
2. Identify all business assets to liquidate
3. Identify the costs of liquidating business
4. Sell business assets
5. Prepare necessary financial statements and other
documents
6. Liquidate company in court
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Make formal decision about
liquidation
- Dependent upon the country’s legislative, a company’s
owners should formally declare liquidation process on
their statutory bodies
- Owner’s should also appoint liquidators or liquidator independent person or one of the owners (sometimes all
of them!)
- Owner’s have strong influence in the whole process but
the liquidator is legally in charge
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Identify all business assets to liquidate
 Make a list of the tangible (computers, vehicles, land, property,
machines etc.) and intangible (accounts receivables and
payables, security deposits etc.) assets your business owns,
 Used factoring in case of inability to collect accounts
receivables; if possible negotiate repaying the debt with your
creditors – hire a lawyer to do that for you
 If something is left after settling all debts, the owner’s share it
amongst themselves
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Identify the costs of liquidating
business
 On top of existing business costs that should be settled
from the existing assets, do not forget the costs of
liquidating process
 E.g. Lawyers, accountants, organization of auctions,
advertising sale of assets, possible taxes and other fees
that are to be paid regardless of the liquidating process –
do a careful calculation!
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Sell business assets
 There are different ways to sell your assets, dependent on
the country’s law or best practice cases
Potential ways to sell your assets:
- Existing creditors
- Auctions
- Ads in newspapers, internet selling sites etc.
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Prepare necessary financial documents
 Ask your legal authorities which documents you must
deliver to the various government authorities (court, tax
office)
 Example of documents are: Financial statements
(Beginning and End of Liquidation), Tax-reports
 In some cases the court will ask for all of your business
documentation, stamps etc. to be deliverd to them in
order for liquidation to be finalized
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Liquidate company in court
 In general, the juridical bodies such as trade courts etc.
make a final decision about the cessation of existence of
your company.
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Selling your business
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General info on selling your business
 In order to sell your business you must first find a
buyer. Willingness to buy your business will be influenced by
its profitability, assets, liabilities, and general market
conditions.
 In general, if you have a profitable business with assets higher
than liabilities, you should have no problem finding a buyer.
 If your business has been losing money for some time and has
debts higher than assets, or if the market conditions are not
favourable you may have difficulty in finding a buyer.
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Pros and cons of selling your business
PROs
CONs
 You can get higher price for your entire
 You may have problems in finding
business than for just particular assets in
liquidation
 Your buyer can get possible tax
deductions (country dependent)
 It is usually simpler procedure than
liquidating
 For a buyer it would be cheaper to buy
your existing business than to start one
from the scratch
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buyer – especially if your business
is in debt or not profitable
 If you have a personal liability for
business debts, this is not
eliminated if you sell your
business - you will still have to
repay it yourself if you do not
agree with buyer otherwise
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3 stages of determining whether to buy
your business – buyer’s point of view
1st stage - Due dilligence
– The method to background check on your business (financial
statements up to 5 years back, tax returns, contracts and other
legal matters),
- Buyer talks to you as the owner, your banker, customers,
suppliers etc.
- Buyer also determines why do you sell your business (nonprofitable, debt, retirement, sickness etc.)
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Cont’d
2nd stage – Valuing the business
- Determining fair value of the firm by using one of the
most common methods:
1. Asset-based valuation – Liquidation valuation – how
much a company is worth by looking at tangible assets,
their rate of recovery and liabilities that need to be paid
2. Market-comparable valuation - looks at the actual
market prices of recently sold firms similar to the one
being valued
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Cont’d
3rd stage – Negotiating and Closing the Deal
- The purchase price of a business is determined by
negotiation between buyer and seller. The calculated
value serves as the estimate in negotiations, and it is
advisable to sign a deal and negotiate fine nuances using
a lawyer, as the independent third party.
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Ways to sell your business
 Sale to strategic buyers
 Sale to financial buyers
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Strategic buyer
- The value of the business comes not only from financial
valuation but also from the potential synergy or strategic
fit the new business might bring.
- If the potential buyer is a competitor - the acquisition
might provide long-term competitive advantages (e.g.
lower cost of production or higher product quality) and
the buyer may be willing to pay a premium for the
company.
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Financial buyer
 Look at your firm through financial value and potential cash
generator – if you consider your firm as “your baby” and you
care for your employees, the financial buyers might be a
problem!
Why?
 Financial buyer will usually restructure by cutting costs and
firing people to increase sales (fastest way)!
 Usual method is to finance debt used to buy company with
selling of assets of the firm!
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Bankruptcy
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General info on bankruptcy
 Bankruptcy is declared over a company which is insolvent for
longer period of time (or business account is blocked) and is
not able to cover all the debts from company’s own assets
 The bankruptcy trustee (government or court appointed) takes
over the entire liquidation process, and pays all the creditors
from the entire bankruptcy mass according to their priority
 The procedure is much more complex and owner’s do not have
any control over it
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General steps in bankruptcy procedure
1.
2.
3.
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Creditors or owner(s) file for bankruptcy by a court procedure
Bankruptcy trustee is appointed by the court
Company’s assets is liquidated (bankruptcy mass) and sold to pay
creditors – universality principle = all assets sold to repay all debts
Creditors are paid according to priority (determined by country’s
laws)
Bankruptcy trustee files reports to bankruptcy judge on which
suggestion a procedure is legaly concluded by the court verdict
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